Mylan N.V. (NASDAQ:MYL) shares are down more than -18.83% this year and recently decreased -1.29% or -$0.29 to settle at $22.24. SLM Corporation (NASDAQ:SLM), on the other hand, is up 11.43% year to date as of 09/12/2019. It currently trades at $9.26 and has returned 6.07% during the past week.
Mylan N.V. (NASDAQ:MYL) and SLM Corporation (NASDAQ:SLM) are the two most active stocks in the Drugs – Generic industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MYL to grow earnings at a 4.57% annual rate over the next 5 years. Comparatively, SLM is expected to grow at a 15.40% annual rate. All else equal, SLM’s higher growth rate would imply a greater potential for capital appreciation.
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 107.24% for SLM Corporation (SLM). MYL’s ROI is 3.50% while SLM has a ROI of 1.80%. The interpretation is that MYL’s business generates a higher return on investment than SLM’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. MYL’s free cash flow (“FCF”) per share for the trailing twelve months was +1.21. Comparatively, SLM’s free cash flow per share was -0.15. On a percent-of-sales basis, MYL’s free cash flow was 5.46% while SLM converted -3.4% of its revenues into cash flow. This means that, for a given level of sales, MYL is able to generate more free cash flow for investors.
MYL’s debt-to-equity ratio is 1.12 versus a D/E of 9.65 for SLM. SLM is therefore the more solvent of the two companies, and has lower financial risk.
MYL trades at a forward P/E of 4.88, a P/B of 0.96, and a P/S of 1.02, compared to a forward P/E of 6.62, a P/B of 1.47, and a P/S of 1.83 for SLM. MYL is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. MYL is currently priced at a -15.85% to its one-year price target of 26.43. Comparatively, SLM is -28.33% relative to its price target of 12.92. This suggests that SLM is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MYL has a beta of 1.81 and SLM’s beta is 1.44. SLM’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. MYL has a short ratio of 2.48 compared to a short interest of 6.60 for SLM. This implies that the market is currently less bearish on the outlook for MYL.
Mylan N.V. (NASDAQ:MYL) beats SLM Corporation (NASDAQ:SLM) on a total of 9 of the 14 factors compared between the two stocks. MYL generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, MYL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, MYL has better sentiment signals based on short interest.